Yahoo moves ahead with Alibaba spinoff, brushing aside IRS concerns

Yahoo is moving ahead with its plans for a tax-free spinoff of its shares in Chinese e-commerce company Alibaba despite concerns raised by the Internal Revenue Service, according to a regulatory filing late Monday.

Yahoo CEO Marissa Mayer pleased shareholders and appeased activist investors early this year when she announced plans to deliver them a tax-free return of the company’s 15 percent stake in Alibaba, then valued at more than $38 billion and now about half that. But concerns grew in recent weeks over whether the IRS would allow the transaction that is scheduled to happen at the end of this year.

Without mentioning Yahoo, the IRS has been signaling in recent public statements that it disapproves of arrangements that resemble Yahoo’s plan to spin off a minor e-commerce business division into a new company called Aabaco, and use that to hold its 384 million shares of Alibaba.

“In order for a spinoff to be tax-free, there needs to be a trade or business, not just a portfolio holding,” said Steven Rosenthal, a senior fellow of the Urban-Brookings Tax Policy Center, in an interview Monday.

Yahoo said in the Monday filing that its board met on Sept. 23 and agreed to continue pursuing the spinoff without waiting for a favorable ruling from the IRS, which had notified the Sunnyvale company on Sept. 8 that it would not provide a comfort letter confirming that the deal was OK.

While acknowledging that the IRS is studying new guidance that could deter such deals in the future, that guidance “would not apply retroactively,” the company said.

In other words, that spinoff better happen soon or Uncle Sam might have a big tax bill for the struggling Web pioneer and its shareholders. And even if it does go through, the threat of a future audit could linger.

Above: Yahoo corporate headquarters in Sunnyvale, Calif., on Tuesday, Jan. 20, 2015. (LiPo Ching/Bay Area News Group)

 

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